The Simple Analytics of Job Displacement Insurance

Donald Parsons

No 9823, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Job displacement in the U.S. is a serious threat to the earnings of long-tenured workers, through both (i) unemployment spells and (ii) reduced reemployment wages. Although full insurance requires both unemployment benefits and wage insurance, supply difficulties limit actual-loss insurance, and separation packages typically include partial unemployment insurance and scheduled (fixed sum) severance pay. The design of this two dimensional package requires a systems approach as well as a generalized replacement ratio measure of adequacy). Job search moral hazard and layoff moral hazard (firing costs), individually and in combination, introduce potentially serious contracting concerns. Economic theory provides a practical guide to the integration of these insurance instruments in this complex planning environment. One important implication: given the structure of earnings losses at displacement in the U.S., severance pay should increase with length of service in the firm ("tenure"), which is common, and unemployment insurance benefit levels should fall, which is not.

Keywords: insurance adequacy; moral hazard; severance pay; wage insurance; unemployment insurance; job displacement; replacement rate (search for similar items in EconPapers)
JEL-codes: J08 J33 J41 J65 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2016-03
New Economics Papers: this item is included in nep-ias, nep-lab and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Journal of Risk and Insurance, 2019, 86 (2), 351 - 380

Downloads: (external link)
https://docs.iza.org/dp9823.pdf (application/pdf)

Related works:
Journal Article: THE SIMPLE ANALYTICS OF JOB DISPLACEMENT INSURANCE (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp9823

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().